First Posted: 3/27/2015
LIMA — When it comes to local government spending, there may not be many notches left in what is becoming a continually tightening belt.
That was the argument made by representatives from local municipalities, townships and social service agencies during a roundtable discussion held by The Lima News. The discussion was prompted by House Bill 64, otherwise known as the biennial executive budget, introduced in the Ohio House of Representatives on Feb. 11.
One of the provisions of the budget would be the phasing down of local government reimbursements from lost tax revenue, with reductions of 48 percent in 2016 and another 39 percent in 2017.
“The total loss to Allen County if this happens will be $3,612,000,” Bath Township trustee Roy Hollenbacher said. “Shawnee Township will lose the most at $991,000, and Bath Township will lose $432,000. We can’t take more cuts. Enough is enough.”
So how did we get here?
While the roundtable focused on current legislation, the roots of the issue go back a decade to another biennial budget, House Bill 66, passed in 2005.
“There was a really large tax packet that was passed,” said Greg Lawson, a policy analyst with the Buckeye Institute, a public policy think tank. “It was proposed by then-Gov. Bob Taft and the General Assembly passed it.”
The budget included a variety of tax reforms, including the elimination of the tangible personal property tax, a business tax that focused on business assets that were not land or buildings, such as machinery, equipment and inventory.
“It was heavily paid by manufacturers, since they were the ones to have the most of that,” said Zach Shiller, research director for policy research institute Policy Matters Ohio. “It was also paid by warehouse operators.”
For the companies paying the TPP, the tax put them at a disadvantage compared to other states.
“I think there was a real recognition that this was a problematic tax, and … if you didn’t do something about it, you wouldn’t be able to stop the hemorrhaging of the jobs in that particular sector, which were higher paying jobs,” Lawson said.
The tax revenue, however, which, along with the also-discontinued corporate franchise tax, reached between $1.6 billion and $1.8 billion, according to Shiller, was crucial for school districts, municipal governments and social services. To offset such a large loss, the state government created the commercial activity tax, a tax on business gross receipts, while also reimbursing the local governments and services that had benefited from the former tax.
“There would be periods of full reimbursements that would be reduced over time,” Shiller said. “I believe it was four years for the TPP and five years for the corporate franchise tax.”
Shiller maintained, however, that these measures were not nearly enough to make up for the lost tax revenue.
“Our problem with the CAT tax from the very beginning … was that the rate was set in a way that it would only replace about half of the two taxes that were repealed,” he said.
Enter the Great Recession
While lawmakers had a plan in place to slowly phase out local reimbursements from the TPP, an unforeseen event, the 2008 recession, soon complicated matters.
“The phasing in and out didn’t get completed until we were already in the middle of the recession,” Lawson said.
The economic downturn created a perfect storm of financial uncertainty for local governments, with cuts to the TPP coming into full fruition during the middle of the recession.
“But as the time went on and we saw less revenue from the income tax and the corporate franchise tax, they kicked in 100 percent when the recession hit,” Shiller said. “So it was a double whammy, and that’s why we had such a large deficit in 2011.”
To combat the deficit, Gov. John Kasich proposed cutting local government funding and accelerating the cuts to the TPP reimbursements.
“He essentially called back money that was part of the revenue sharing in order to balance the budget and rebuild the rainy day fund, which started at 87 cents and is now at $1.5 billion,” Lawson said. “They had to do something, and obviously the governor also wanted to do some tax cuts for further stimulus for economic growth.”
Fast forward to 2015
Many of the representatives at Monday’s roundtable, including representatives from entities such as Allen County Children Services, the Council on Aging, the Mental Health Recovery Services Board and the Johnny Appleseed Metropolitan Park District, outlined how they have been affected by the lower state funding in the years since 2005 and House Bill 66.
“These cuts have drastically affected us,” JAMPD director Kevin Haver said. “Losing the personal property tax in 2005 when House Bill 66 passed represented just under 19 percent of our total budget.”
For Putnam County Trustee Association President David Wieging, the current budget proposal continues a pattern of action in Columbus that sees less help going to local entities.
“Columbus is just taking and taking,” he said, “and we have someone saying, ‘Oh, I’m not raising your taxes. I might even run for president because I’m not raising your taxes.’ No, he’s taking what was originally given to us.”
Shiller also questioned why this pattern of cutbacks is continuing now after the recession.
“At least at that time, you could at least say that the state had to do something to balance the budget,” he said. “Now, there’s no imperative, no budget crisis that’s compelling the state to take this measure. It’s simply an attempt to find revenue to pay for income tax cuts, as I see it.”
Lawson, however, maintained that rather than looking to Columbus for its funding, local governments and agencies should look locally for funding through local levies.
“I know there is skepticism if you can pass a levy,” he said. “But if you want home rule, which is what we have in our constitution, the way you do that is by paying for things at the local level. But in order to do that, you’re going to have to sell it.”
However, Wendy Patton of Policy Matters Ohio, argued that there simply is not enough of a tax base to support agencies and government entities at a local level.
“It would be one thing to face these cuts if we had a robust economy throughout the state with a rapidly rising property tax base that was replacing the revenues that are being lost,” she said. “We are not seeing that.”
House Bill 64 is being debated in the House of Representatives.
